Goldman Sachs Increases S&P 500 EPS and Index Price Target Ahead of Q3 Earnings

Goldman Sachs strategists have updated their earnings per share (EPS) forecast for the S&P 500 for 2025 to $268, which reflects an 11% increase compared to the previous year. This is an increase from their earlier estimate of $256, which represented a 6% growth. Additionally, they have introduced a 2026 EPS estimate of $288, indicating a 7% increase, while keeping the full-year 2024 EPS forecast steady at $241.

The firm’s 2025 and 2026 EPS projections of $268 and $288, respectively, exceed top-down consensus estimates of $265 and $281 but fall short of bottom-up consensus estimates of $275 and $307. Although Goldman Sachs anticipates that U.S. GDP growth will surpass general consensus, they caution that bottom-up EPS estimates are often overly optimistic and tend to be revised downward.

“Our 2025 and 2026 EPS estimates imply a 3% negative adjustment to bottom-up consensus each year, which is slightly less pessimistic than the historical trend,” the strategists mentioned.

In the short term, analysts have revised their expectations for EPS growth in the third quarter of 2024 from 9% to 4%, a notable drop from the 11% growth recorded in the second quarter.

Goldman’s strategists, referencing their macro model data, indicated that the current forward price-to-earnings (P/E) ratio for the S&P 500 stands at 22x, which they believe is reflective of fair value. They expect this multiple to remain at 22x by the end of 2024 but may slightly contract to 21x over the next year.

Over the next three months, the bank expects minimal changes in the macroeconomic landscape. However, they warn that valuations might fluctuate as markets react to possible policy changes stemming from the 2024 U.S. elections.

Looking ahead, they predict slower economic and earnings growth for 2026 combined with modestly higher real yields, potentially leading to a slight contraction in the price-to-earnings multiple.

Consequently, Goldman Sachs has set a new three-month price target for the S&P 500 at 6000, up from an earlier estimate of 5600. Their six-month target is now 6100, and the 12-month target is set at 6300, an increase from their previous forecast of 6000.

The strategists anticipate that the market will capitalize EPS of $274 by the end of the year, which represents a 1% cut from bottom-up consensus, and $300 in 12 months, reflecting a 2% adjustment. This implies a potential 10% price return over the upcoming year, slightly below the median return of 12% since 1980.

“We believe that returns will be limited by a high starting valuation,” the strategists noted.

They have also identified potential risks to their forecast. If the P/E multiple remains at 22x, the S&P 500 could rise to 6600 in 12 months, representing a 15% upside.

Historically, high valuations have been observed during recovery periods following recessions, although the 1998 cycle exhibited both economic growth and a Federal Reserve rate-cutting environment that led to a 40% overshoot of fair value.

Should the P/E increase to 23x, akin to the average in 2021, the S&P 500 could reach 6900, marking a 20% gain. Conversely, if economic growth weakens, the index could fall to an 18x multiple, resulting in a drop to 5400, which represents a 6% downside.